Survival of the Fittest
Last week I watched all the various Chrysler and GM dealer closing stories with amazement at both the sheer amount of media coverage and the questioning outcry of how this could happen. The arguments for doing it are both compelling and convincing. It's essentially a fact that only the fittest survive in distribution.
Being in the dealer/distribution business is not for wimps. The auto industry, especially American manufacturers, has long been protecting a bloated car dealership distribution network. There are simply too many dealers, too many brands, and too few customers. The numbers bear this out. When you look at the average Toyota or Nissan dealership, they sell four to five times more cars than do Ford, GM or Chrysler dealerships. Toyota dealers averaged 1,628 cars sold in 2007. Ford averages 236, with some Chrysler dealers selling less than 100. It's simply because there are fewer Nissan and Toyota dealerships. They're coveted because the foreign manufacturers subscribe to an exclusive distribution approach. The number of dealerships for American manufactured cars was right about 30 years ago, when there were less foreign cars sold.
Cutting back in distribution happens every day in other categories. Distributors also prune the manufacturers they deal with. If the products don't sell, why should distributors take on the expense of stocking them? The same holds true with a brand that's available at every distribution house. It loses cachet by being widely distributed. That's why the best brands are those that work hard on their distribution policies and don't over distribute. Pruning is the natural order of channel management for manufacturers and distributors alike. Distributors will drop products as well as manufacturers will drop distributors. It happens. It's a daily occurrence. That's why it's so interesting to witness the outcry over dealerships being closed.
Yes, some of these dealerships have been in families for years, passed down from generation to generation. Personally and professionally, it hurts those who run the dealerships. It feels like they've been abandoned. But, again, they've been living in an unreal world. The laws of the distribution jungle didn't seem to apply to American car dealers. It was like an annuity. Once you had the brand badge, so to speak, from a car manufacturer, you never lost it; even though sales dwindled year after year, decade after decade. This loyalty was bleeding Chrysler and GM day in and day out.
What is happening is the best thing for the American car manufacturing dealer community. It may be smaller, but it will be healthier. Dealer contraction can be a really good thing for those dealers who are left standing. It is, after all, survival of the fittest. This is the law of the distribution jungle.
